Mandatory payrolling of benefits: The roadmap has arrived

Employers preparing for the mandatory payrolling of Benefits in Kind (BiKs) have been given a clearer roadmap of the journey ahead, as Georgie Ward, policy and research officer at the Chartered Institute of Payroll Professionals (CIPP) explains.

HMRC has confirmed that mandatory payrolling of BiK will be introduced in two phases, with the first commencing from 6 April 2027 and the second from 6 April 2028.

The phased approach is intended to support a smoother transition as employers, agents, payroll teams and software developers prepare for one of the most significant changes to benefits taxation in recent years.

With payrolling, the taxable value of BiKs and expenses will now be reported to HMRC via the Full Payment Submission (FPS), allowing tax and Class 1A National Insurance contributions (NICs) to be reported in real time.

For many employers, the question is no longer whether mandatory payrolling is coming, but when their benefits will be affected.

Phase 1: the starting line

From 6 April 2027, mandatory payrolling will apply to:

Company cars
Car fuel
Vans
Van fuel
Employer-provided medical benefits.

These are some of the most common benefits provided by employers and often the most visible to employees. By focussing on these benefits first, HMRC can begin the transition, while allowing additional time to work through the practical challenges associated with more complex benefits.

For many organisations, the challenge is unlikely to be the benefit calculation itself. Instead, success will depend on how quickly and accurately information can move between HR, reward teams, benefit providers and payroll. Real-time taxation requires real-time information.

The impact of the first phase will vary between employers. Businesses with company car fleets or extensive private medical insurance arrangements are likely to feel the effects immediately.

Phase 2: the next destination

From April 2028, mandatory payrolling will extend to most other BiKs. However, HMRC has confirmed that accommodation and beneficial loans will remain voluntary for the foreseeable future.

A change beyond payroll

At first glance, mandatory payrolling looks like a payroll project. In reality, it’s likely to affect multiple areas of a business.

Many employers currently collect benefit information through annual exercises or periodic reviews. Real-time reporting will require accurate information to flow into payroll throughout the tax year, meaning organisations may need to review internal processes, how data flows between departments, employee communications and payroll system capability.

What should employers do now?

The phased approach provides employers with an opportunity to start preparing in a structured way. Now is the time to review benefit arrangements, understand where the benefit data originates, engage with software or third-party providers and identify any process gaps that could affect real-time reporting.

Early preparation is likely to make the transition significantly smoother when mandatory payrolling becomes a reality.

The route has now been mapped, the pit stops have been confirmed and the satnav has spoken. For employers providing company cars, fuel, vans and medical insurance, the journey begins in April 2027. For everyone else, there may be a little more road ahead, but the end destination remains the same: real-time reporting of benefits through payroll.